“Zest for Enlightenment”
Z/Yen LimitedRisk/Reward Managers5-7 St Helen’s PlaceLondon EC3A 6AUUnited Kingdomtel: +44 (20) 7562-9562
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© Z/Yen Limited2004
Be - Collaborative Risk Management
Collaboration, Risk and Reward in
Other IndustriesMichael Mainelli, Executive Chairman
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© Z/Yen Limited2004
Agenda
“Great deeds are usually wrought at great risks”Herodotus
Governance and the risk society
Mutuals et al
Enterprise risk/reward management systems
Challenges for Property organisations
Information sharing
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Z/Yen Overview
Special – foremost risk/reward management firmServices – projects, coaching/training, benchmarking, expertise on demandSectors – technology, finance, voluntary sector, professional services, government, outsourcingSome highlights – Clean Business Cuisine, DERA/Qinetiq, Taskforce 2000, Investment Banking CCC’s, DTI Smart Award 2003 for PropheZy, DTI Foresight Challenge Award 1996 for Financial £aboratory
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Risk
Reward
Rethink
Restructure
Invest
Divest
LikelihoodCostIgnore
(avoid/eliminate, pool/share/transfer, mitigate/reduce, accept)
(enhance, keep, sell, forego)
Tactical
Strategic
Fundamental
Exploit
Emergency
3. Lookaheads & Likelihoods
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Action Plan
RiskControl
Financingof Risk
CostJustification
ContinuousLearning
Treatment
ContingencyPlanning
Typical Views of Risk in Industry
RiskAssessment
& Evaluation
Benchmarking Cost of RiskSharedDatabase
Measurement
Stakeholder
Characteristics ofthe Organisation
BusinessPolicies &Objectives
RiskManagementObjectives& Strategy
BusinessDrivers
Strategy
Classification
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Too Crushed to Govern
Cadbury, Greenbury, Hampel, Turnbull, Higgs, KonTrag, Sarbanes Oxley, …COSHH, H&S, …“Initiatives” – lots of paperTargets – lots of paperFinance – lots of paperRisk management – lots of paper
Need integrated performance measurement!
“The future will be better tomorrow.”
Dan Quayle
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© Z/Yen Limited2004
Ris
k
Likelihood
shar
ehol
der
view
deb
tor
view
regu
lato
rvi
ew
activity-based cost analysis*& operational reliability
event-loss databases&
benchmarking*
enterprise risk/reward management systems*
mutual risk management*&
external/re-insurance
extreme value theory&
last resort
debt/equity requirements&
subordinated debt issues
Rew
ard
event frequency
Risk, Finance and Governance
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““Cost of retention fund interest, insurances, bonds and Cost of retention fund interest, insurances, bonds and
administration costs could equate to 3% of contract value”administration costs could equate to 3% of contract value”
Risk Management Costs
Retention, bonds and PI insurance 1.1%
3rd party insurance, works insurance 0.5%
Legal costs, administration, overheads
expert advice, time, work disruption,
duplication etc. say 1.6%
3.0%
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Risk Management Working Group
Risk Management
Sharing Knowledge DBF Risk Standards
Collaboration Mutual Insurer
Risk Acceptance
Current
Bulk-Buying Insurance
Operational
Project
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Effort
Scope
1. Information sharing for
internal funds
4. UK company or Lloyd’s syndicate
3. Captive insurance company or PCC or
ER/RM2. “Badged”
insurance
7. Capital markets solutions
6. Construction industry mutual
5. Be Mutual
Risk Management Working Group View
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Mutual(s) Benefits
Cost effective utilisation of insurance, expert resources and systems
Risk strategy developed without internal political pressures - avoids combining risk management role with other duties
Easy access to specialist expertise
Knowledge sharing
Industry gains
Share costs with other client users for future developments in risk management
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Shipping & Transportation Mutuals
Shipowners Protection & indemnity risks (mainly third party liabilities)
World's largest - one-fifth of the world's shipowners
Shipowners Costs of pursuing/ defending claims for uninsured amounts
World's largest - one-fifth of the market - 2000+ ships
Multimodal industry
Equipment and liability insurance
5000 companies worldwide - 70% of world container fleet
Ship agents, shipbrokers, ship managers,surveyors
Professional indemnity and public liabilities
World's largest - 1000+ members
GreekShipowners
Marine war risks including capture & seizure
80% of Greekowned ships
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Not Just Shipping
LawSIMIAMeridies, LawnetBar Mutual
Pension Fund Trustees
Patent Agents
Clinical Negligence Scheme for Trusts
Variants
PAMIA
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Obvious Issues
What risks are jointly shared BUT on which you do not compete?
Can these risks be assessed and managed (e.g. standards and certification schemes)?
Is there benefit in joint learning about risks?
Is there an industry benefit in perceived risk management/guarantees?
What is being pledged to the pool - equity, charges, promises?
Can the industry co-operate?
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Enterprise Risk/Reward Management Systems
Strategic risk valuation - holistic approach
Internal “insurance” unit, premia and claims management, but:
near misses
sharing best practice
Key performance target integrated into MIS
External comparators
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6. Securing and Scoring
Risk/RewardProfile
Risk/RewardManagement
UnitRisk
ProfileImprovement
Information Sharing
Results Risk
Assessments
Reward Management
Profit, Bonuses“insurance”
premia
Enterprise Risk/Reward
Management Systems
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Annual Cycle
Determine business unit premiums - linked to risk assessment and action planInform business units of deductible and methodology through self insurance agreementCollect premiaRecord and investigate any in-year claims, near miss records, etc.Pay out on verified losses (calls possible)Feed information into next year’s insurance system
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Typical Enterprise Risk/Reward Management
comparator
sharing best practice
claims
strategic risk valuation
premia
notificationsand investigations
Extern a l M arke ts In te rn al "Po o l"
R isk /Rew ard U n it
U n it A U n it B
O p era tio ns
O rg an isa tion
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Challenges for Property Organisations
Many layers of contracting
Aligning targets and remuneration
Looking at the system, not the incident
Picking a single risk to start with
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Operational Risk in Industry
Six Sigma ISO9000
Total Quality
ChecklistsProceduresInspection
Numerical targetsEngineeringAutomation
ContributionCommitmentCulture
Measure Manage
Motivate
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Sharing Information
Risk Management Working Group recommendation
Charity Insurance benchmark example
Other cost benchmarking
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Next Step?
Contact us for a
discussion on
radical improvement.
“Get a detailed grip on the big picture.”
Chao Kli Ning